Home insurance, or homeowners insurance, is an insurance policy that combines various personal insurance protections which include losses occurring to one's home and its contents. Further, homeowners insurance protects against the loss of the use of a home and loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home.
The cost of homeowners insurance often depends on what it would cost to replace the house and which additional riders (i.e., optional benefits indicating additional items to be insured) are attached to the policy. The insurance policy itself is a lengthy contract, and discloses what will and what will not be paid in the case of various events. Typically, claims due to earthquakes, floods, acts of God, or war are excluded.
The home insurance policy is usually a term contract (i.e., a contract that is in effect for a fixed period of time). In addition, insurance companies offer perpetual insurance (i.e., home insurance without a fixed term). The payment the insured makes to the insurer is called the premium, which must be paid each term. Most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed. For example, if the house is situated next to a fire station, or if the house is equipped with fire sprinklers and fire alarms the corresponding premium will be lower than normal.
Generally, there are six standardized homeowners insurance forms in general and consistent use. The standardized forms are described below:
Homeowners Form 1 (“HO-1”) is a limited policy that offers varying degrees of coverage for items specifically outlined in the policy. For example, this policy can be used to cover a valuable object found in the home, such as a painting.
Homeowners Form 2 (“HO-2”) is similar to HO-1 in that it is a limited policy. However, a HO-2 policy covers specific portions of a house against damage. The coverage is usually a “named perils” policy, listing the events that are covered.
Homeowners Form 3 (“HO-3”) is the most common policy for a homeowner. It is designed to cover all aspects of the home, structure and it contents as well as any liability that may arise from daily use as well as any visitors who may encounter accident or injury on the premises. Covered aspects as well as limits of liability are clearly spelled out in the policy to insure proper coverage.
Homeowners Form 4 (“HO-4”) is commonly referred to as renters insurance. This policy covers those aspects of the apartment and its contents. This policy can also cover liabilities arising from accidents and intentional injuries for guests.
Homeowners Form 5 (“HO-5”) covers a home, the homeowner, and its possessions as well as any liability that might arise from visitors or passers-by. This coverage is different from HO-3 in that it covers a wider breadth and depth of incidents and losses than an HO-3.
Homeowners Form 6 (“HO-6”) is a form of supplemental homeowner's insurance known as condominium coverage. It includes coverage for the part of the building owned by the insured and for the property housed therein of the insured. It is designed to span the gap between what the homeowner's association might cover in a blanket policy written for an entire neighborhood and those items of importance to the insured. Typically the HO-6 covers liability for residents and guests of the insured in addition to personal property. The liability coverage, depending on the underwriter, premium paid, and other factors of the policy, can cover incidents up to 150′ from the insured property, all valuables within the home from theft, fire or water damage or other forms of loss.
The insurance company is liable for any damage incurred to any property covered by any of the aforementioned policies. To determine the amount of damage to a property, the insurance company sends an authorized representative, usually an insurance adjuster. The adjuster takes an inventory of the damaged items and assesses the overall damage to the property. However, because insurance adjusters are not experts in property remediation, a third party remediation firm, SERVPRO® remediation services, SERVICEMASTER CLEAN® remediation services, or RAINBOW INTERNATIONAL® remediation services, is hired to help assess the damage. In addition, insurance adjusters are not available in all areas. As a result, insurance companies or insured's may hire one or more of these remediation companies directly.
Remediation firms assess which items can be restored, which items can be repaired, and which items must be replaced. The decision is made by the remediation company and supervised by an insurance company adjuster (if assigned). However, determining the cost to replace a particular item is not easily determined. It is also difficult to estimate the final cost to repair the item at the site of the loss since the people involved may not be educated on contractual pricing and other insurance related cost matters. Further, because storage time and cost is variable, and is billed to insurance companies on a “cost plus” basis, it is difficult to determine an accurate price of repairing an item. Also, even if items are restored, they may not be accepted by the claimant/insured, which results in the insurance company paying twice: once to the remediation company for its services, and once to the claimant/insured to replace the same item.
Importantly, the interest of the remediation firm is directly opposed to that of the insurance company; the remediation firm has an interest in salvaging as many items as possible, and storing them as long as possible to maximize revenue. As a result, there is no reliable, accurate cost benefit analysis performed on these items to determine whether it is in the best interest of the insured to repair or replace a particular item.
Further, because the interests of the insurance company and the remediation firm are opposed, there is a possibility that the remediation firm will fraudulently determine that a particular item needs repair. In addition, remediation companies often subcontract repair work on items to friends and other preferred partners. Currently, there is no control or documentation over why a particular item was sent to a particular remediation firm. A corrupt individual could team up with a remediation firm to send an excessive amount of items to be restored without regard as to whether it is a good decision.
There are several systems which aid insurance companies in determining the scope and payment of incurred claims. For instance, many insurance companies utilize a communications network for processing insurance claims for vehicles and other items with parts. It consists of a network containing claim terminals and repair terminals. Identification data, which may include electronic images and other related information, is inputted into claim terminals and sent to repair terminals. Information related to costs associated with repair and replacement is returned to the claim terminal where the results can be compared. However, this system is focused on automobile insurance and is driven by its role as a communication platform to share digitalized photographs of damaged parts providing real-time connection between the claim handler and the body shop and/or parts supplier. In addition, the system does not aid in determining the salvage value of replaceable parts, nor does it prevent fraudulent transactions from occurring.
In addition, Allstate® currently utilizes a remote contents estimating system. The system is an Internet-based system for providing an estimate of the cost of settling an insurance claim. Inventory information subject to the claim is collected and a price data acquirer is used to obtain prices for replacing the inventory items from a price database or similar source. The system is meant to be a comprehensive method of resolving the entire claim and provides a means for absorbing supplemental information into the original recommended settlement and generating a new updated version. The system incorporates policy limit information and depreciation tables as part of its process for providing an estimate of the claim's resolution costs. The system considers multiple options for each item in the claim (including repair and/or cleaning costs, replacement costs, RCV/ACV, and replacement allowances) and recommends a specific solution while arriving at the estimated total claim cost.
However, there are several drawbacks associated with this system. For example, the system utilizes historical price data as a basis; it does not utilize real-time data. As a result, the values determined by this system can be erroneous. In addition, it is macro based. That is, it focuses on the claim in its entirety rather than specific, questionable items. In addition, this system does not take into account customer rejections (i.e., redundancy) or the salvage value of some items.
In light of the foregoing, there exists a clear need in the art for a system and method for the real time determination of the salvage value of items covered by a home insurance policy. In addition, there is a clear need for a system which monitors and reduces the proliferation of fraudulent claims associated with items covered by a home insurance policy.